With the EFSF likely to insist on even more severe budget cuts the short-term impact is almost certain to result in the nationalisation of the remaining Irish-owned banks in the next few months.

By the time this article appears in print, the Government may already have gone cap in hand to the EFSF, the joint venture between the ECB and the IMF established last May to act as a lender of last resort to financially-strapped eurozone countries.

And who can doubt, the protestations of our government notwithstanding, that Ireland now falls into this category? At one stage this week Irish bond yields had climbed to a vertiginous 9.26 per cent while it was costing almost €600,000 a year to insure €10m of Irish government debt against the risk of default. At that price the markets were factoring in a 30 per cent "haircut" for holders of Irish government bonds some time over the next five years.

It now costs twice as much to insure Irish government debt against the risk of default as that of either Romania or Hungary while insuring Argentinian bonds is now only marginally more expensive than Irish bonds. What this all means is that an early Irish appeal to the EFSF is very much a matter of when rather than if.

In order to demonstrate its financial cojones the EFSF will have to insist on an even more severe programme of public spending cuts and tax increases than the Irish Government has already signed up to. With the Irish Government now promising budgetary "adjustments" of €15bn between now and 2014, of which €6bn will be front-loaded in the December 7 budget, what are the odds on the EFSF hiking that figure to €20bn with €8bn front-loaded?

While public spending cuts and tax increases of this magnitude may well be necessary to restore fiscal stability, the short-term consequences are likely to be severe with the economy shrinking even further and more people losing their jobs. That is very bad news for the banks, who are likely to suffer even higher losses on mortgages and other loans.

This will in turn push up the amount of fresh capital required by the Irish banks. With the Irish banks now toxic in the capital markets that fresh capital can only come from the State. As a result, starting with AIB, the three remaining Irish-owned banks, which have so far managed to stay out of state ownership, are likely to be de facto nationalised in the next few months.

With Bank of Ireland having revealed on Friday that it expected its full-year operating profits to be 35-40 per cent lower than the €1.5bn recorded in 2009, it is clear that the Irish banks are already under ferocious pressure. Will the additional spending cuts and tax increases demanded by the EFSF be enough to force them into the arms of the state?

EFSF intervention is also likely to be bad news for most of the other Irish stocks if past experience is any guide. With the IMF being the junior partner it will be unable to insist on the currency devaluations which normally accompany its involvement with non-eurozone economies. The bad news could get a lot worse before it starts to get better.